WASHINGTON - America's prison population grew again in 2002 despite a declining crime rate, costing the federal government and states an estimated $40 billion a year at a time of rampant budget shortfalls.

The inmate population in 2002 of more than 2.1 million represented a 2.6 percent increase over 2001, according to a report released Sunday by the Bureau of Justice Statistics. Preliminary FBI statistics showed a 0.2 percent drop in overall crime during the same span.

Experts say mandatory sentences, especially for nonviolent drug offenders, are a major reason inmate populations have risen for 30 years. About one of every 143 U.S. residents was in the federal, state or local custody at year's end.

"The nation needs to break the chains of our addiction to prison, and find less costly and more effective policies like treatment," said Will Harrell, executive director of the Texas American Civil Liberties Union. "We need to break the cycle."

Others say tough sentencing laws, such as the "three strikes" laws that can put repeat offenders behind bars for life, are a chief reason for the drop in crime. The Justice Department, for example, this year ordered Bureau of Prisons officials to stop sending so many white-collar and nonviolent criminals to halfway houses.

"The prospect of prison, more than any other sanction, is feared by white-collar criminals and has a powerful deterrent effect," Deputy Attorney General Larry Thompson said in a memo announcing the change.

Yet the cost of housing, feeding and caring for a prison inmate is roughly $20,000 per year, or about $40 billion nationwide using 2002 figures, according to The Sentencing Project, a nonprofit organization that promotes alternatives to prison. Construction costs are about $100,000 per cell.

Even as these costs keeping climbing, the federal government is tackling a giant budget deficit and 31 states this year are cutting spending � most often across all programs � to deal with shortfalls, according to the National Conference of State Legislatures.

"The prison population and budget figures, taken together, should be setting off alarm bells in state capitols," said Jason Zeidenberg, director of policy and research for the Justice Policy Institute, a nonprofit organization focused on ending reliance on incarceration.

Drug offenders now make up more than half of all federal prisoners. The federal penal system, which has tough sentencing policies for drug offenses, is now the nation's largest at more than 151,600 � an increase of 4.2 percent compared with 2001.

Over the same period, state prison and jail populations grew just 2.4 percent. Prison alternative advocates credit moves in some states to divert drug offenders to treatment programs and other innovations for that lower growth rate.

Texas, for example, recently passed a drug treatment alternative law and saw its prison population remain virtually unchanged from 2001 to 2002. Ohio, which revised its sentencing and parole guidelines in the late 1990s, had its prison and jail population rise just 0.8 percent last year compared with 1.9 percent for the Midwest as a whole.

"The way to reduce prison spending is to reduce the number of people in prison and the number of prisons, like some states across the country have done," said Rose Braz, director of Critical Resistance, a California-based group opposed to prison expansion.

At the same time, the Justice Department report found that 17 states reported increases of at least 5 percent year-to-year in their prison populations, with Maine's increasing by 11.5 percent and Rhode Island's rising 8.6 percent. The federal prisons and almost all state corrections systems are over their capacities, with 71,000 offenders serving their state or federal sentences in local jails.

Other key points in the report:

_As of last Dec. 31, 2002, there were 97,491 women in state or federal prisons, or about 6.8 percent of all inmates and one in every 1,656 women. There were over 1.3 million male inmates, or about one in 110 men.

_About 10 percent of all black men between 25 and 29 were incarcerated last year, compared with 1.2 percent of white men and 2.4 percent of Hispanic men. Overall, the 586,700 black men in prison outnumbered both the 436,800 white males and 235,000 Hispanic males. Black males account for about 45 percent of all inmates serving a sentence longer than a year.

_Privately operated prisons held 93,771 inmates, about 5.8 percent of state prisoners and 12.4 percent of those in federal jurisdictions.

_At year's end 2002, the federal government held 8,748 people at immigration detention facilities, 2,377 at military jails and 16,206 in U.S. territorial prisons.